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The United States Court of Appeals for the Eleventh Circuit, applying Georgia law, has held that a single lawsuit constitutes multiple "claims" and some of those "claims" fell outside the misappropriation exclusion in a lawyers professional liability policy, thereby triggering the insurer's duty to defend. Medmarc Cas. Ins. Co. v. Fellows Labriola LLP, 2025 WL 2886733 (11th Cir. Oct. 10, 2025).
A lawyer and law firm represented a husband and wife and their respective companies in a RICO case that settled. Pursuant to the consent order, a receiver was directed to distribute cash from the companies' bank accounts to the law firm's IOLTA account for distribution to both companies and to auction off some of the clients' assets. However, the lawyer and law firm allegedly distributed the funds and auction proceeds only to the husband, who had filed for divorce, and to his company. The ex-wife and her company sued the lawyer and law firm for legal malpractice, breach of fiduciary duty, and breach of contract based on the disbursements and undisclosed conflicts of interest.
The lawyer and law firm sought coverage for the malpractice lawsuit under their lawyers professional liability policy. The insurer denied coverage under the misappropriation exclusion, which barred coverage for "any claim[s] or other request[s] involving or relating to any conversion, improper commingling, or misappropriation, whether by an Insured or any other person, and whether intentionally or not, of client funds or trust account funds or funds of any other person held by any Insured in any capacity." The policy defined "claim" to include "a demand or suit for damages received by the Insured."
In the ensuing coverage litigation, the district court held that the insurer had a duty to defend the entire lawsuit and the duty to indemnify was not yet ripe. On appeal, the insurer argued that it did not have a duty to defend because the entire malpractice lawsuit was one "claim" and that single "claim" fell under the misappropriation exclusion. In so arguing, the insurer relied, in part, on the "When a Claim is Made" provision, which stated "all claims ... involving a single act, error, or omission or series of related act, errors, or omissions shall be deemed to be one claim and to be first made when the first of such claims is made." The Eleventh Circuit found this argument unpersuasive because "an insured would expect that the sentence in question impacts only when a claim is first made and would not expect it to inform the meaning of 'claim' beyond that."
Instead, the Eleventh Circuit held that "[t]here are multiple claims in this suit" and "of those multiple claims, at least some fall outside the misappropriation exclusion." In particular, the Eleventh Circuit determined that "the conflict of interest allegations ... have nothing to do with misappropriation, conversion, or improper commingling." The Eleventh Circuit refused to construe "involving or relating to" so broadly to include "claims [that] simply involve the same parties and are brought in the same lawsuit." Affirming the decision below, the Eleventh Circuit held that the insurer had a duty to defend the entire malpractice lawsuit because certain "claims" fell outside the misappropriation exclusion. The Eleventh Circuit also determined that the insurer's duty to indemnify is not ripe until the underlying malpractice lawsuit is resolved.
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